BC Business
Clint Mahlman | BCBusinessExecutive vice-president Clint Mahlman views every shopper as a potential lifetime relationship.
Walking into one of the 78 London Drugs stores that dot the landscape from Vancouver to Winnipeg can be a jarring experience. Arranged with care on its tall shelves are hundreds of staples you expect from your local drugstore: toothbrushes, cough syrup, shampoo. Turn a corner by the pharmacy, though, and you’ll find delicacies like gourmet mustard and Himalayan pink salt. Past the small kitchen appliances and the one-hour photofinishing counter, you can follow the flashing lights and booming bass into an electronics section crammed with the latest PCs, home theatre systems and LCD flat screens. Depending on the location, there might also be a dining-room set tucked next to the designer-sunglasses rack.
On paper, it’s a kitchen-sink mix with little chance of success. “London Drugs is a business that should not exist. It defies business logic,” says Kenneth Wong, professor of marketing at the Queen’s School of Business in Kingston, Ontario.
“Everybody talks about focus, and here you’ve got this New York department store cosmetics area; you’ve got a pharmacy area that isn’t cutting corners, that’s counselling people; you’ve got this incredible camera staff; and then you’ve got liquidation goods and imported groceries,” Wong says. “It shouldn’t work, but it does. And it does because they treat each department differently.”
London Drugs, which turns 70 next year, thrives by breaking the rules. Since its early days as a lone Vancouver pharmacy, the company has branched out into products and services that were previously unthinkable for a drugstore chain. From laptops to lipstick, it packs a dizzying array of goods into its relatively small locations, bucking the trend toward specialty retail. The chain has held its own against bigger rivals such as Shoppers Drug Mart Corp. and Wal-Mart Stores Inc. by winning customers’ confidence with a long-term strategy based on good selection, fair prices and strong service.
London Drugs has an advantage because as a health-care provider, it can build lifelong trust with people, says Clint Mahlman, the company’s executive vice-president and COO. But the same goes for someone buying a $1.99 pencil, he stresses at a coffee shop in Vancouver’s financial district.
“It’s not about the pencil when you’re dealing with the customer; it’s about the lifetime value of that customer to us,” says the soft-spoken Mahlman, who started at London Drugs as a part-time stockperson in 1984 and recently took over from former president and CEO Wynne Powell. (Brandt Louie is now chair, president and CEO of London Drugs and its privately held owner, H.Y. Louie Co. Ltd.) “If someone’s upset or needs some TLC that is disproportionate to the purchase, that’s okay.”
Mahlman says he often hears about staff making home deliveries, “not because we have a delivery service, but because of that 80-plus-year-old senior who is sick and someone at the store decides that after work, they will personally drop off the products the customer needs.”
London Drugs reminds staff that there’s a bit of theatre to retail, says Mahlman. “Internally, we call it ‘shopping upgraded.’ We have to do everything we can to try and make customers’ experience when they come in feel different or upgraded relative to our competition.”
Describing the company’s stores as a collection of specialty services under one roof, Mahlman points to London Drugs’ Photolab, where technicians work with customers to create gifts and other customized products. He also highlights the “learning labs” that have been introduced at some new locations: “Given we do so much customer education and free seminars, [on subjects ranging] from health to computers, we created a classroom environment.” [pagebreak]
London Drugs must be unique and authentic in a sea of sameness, says Mahlman: “If it’s a product that requires knowledge, the chances are very high that the product knowledge is going to be there with our team.” The company hosts an annual education conference for vendors and management, he notes, where staff learn firsthand about product details so they can fully understand how those goods will work for the customer.
For Mahlman, being the first to offer new products is another part of the trust equation. London Drugs’ buyers travel the world to find unique goods that offer the best value, he says. “They are not looking for what’s hot; they are looking for what’s going to be hot. In many cases, a product will be on London Drugs’ shelves four to five months before our competition.”
The company also constantly listens, he says, citing London Drugs’ use of social media (especially on Facebook and its Nerd blog) as an example. “We don’t think of social media as a way of pushing offers to customers,” he says. “We continue to let them tell us what they want and do our best to grow our social media presence around their needs.”
This plain talk from the boss squares with London Drugs’ persona, which retail consultant John Williams describes as folksy—despite coming from what’s reportedly a $2-billion-a-year operation (as a private company, H.Y. Louie doesn’t disclose financial numbers). “They’re anti-chain, anti-corporate, and for a large section of the population there’s a comfort with that,” says Williams, a senior partner at Toronto-based J.C. Williams Group Ltd. “It’s easier to love a local maverick than a corporate cookie-cutter.”
London Drugs’ low-key brand identity may be deliberate, says advertising veteran Bob Stamnes, president of Vancouver-based Elevator Strategy Advertising and Design Inc. In a rare feat for a major retailer, London Drugs has “never screwed up,” Stamnes observes. “It really goes to show you how companies can garner a lot of credibility if they do what they say they’re going to do and they act in a way that people come to expect.”
What the company is particularly good at, according to Lindsay Meredith, professor of marketing at SFU’s Beedie School of Business, is selling products that require a lot of direct customer interaction. Those exchanges, he says, build so-called relationship marketing: “Relationships between people are based on things like trust and interaction and consideration. So it’s not surprising these guys would come out with loyal customers who rank them high on trust.”
Meredith thinks London Drugs has survived against competitors such as Target Corp. and Walmart by insulating itself from the marketer’s biggest fear: price. “We run in raging fear trying to get away from that issue of price-point competitiveness because that is something everybody in town can imitate.”
After department stores killed the general store, London Drugs successfully revived that mixed-merchandising model, Meredith contends. In an era of retail cost-cutting, he praises it for playing a long game by keeping knowledgeable staff: “When you stop doing that, you fall into the deathtrap of Sears.”
London Drugs has invested in other parts of the business. Queen’s professor Wong notes that the company constantly experiments with better ways to present its products, working with consultants on things like shelving formats. They’ve also built a substantial e-commerce division that operates from coast to coast. “They understand that if you don’t spend that money and invest that time and effort, then you’re going to look like a Zellers,” says Wong. “And we all know what happened to Zellers.”
Meredith predicts that London Drugs will continue to thrive, in part because it’s so good at getting people through the door to check out electronics. Once they’re in, customers wander the aisles and buy smaller items like pens and candy. “The markups are better and the turns are real fast,” he says.
As the competition intensifies—not only from the likes of Shoppers, Walmart and Target, but also dollar stores and online retailers—London Drugs is undoubtedly feeling the pressure. Still, the chain’s methodical expansion will continue, says Mahlman. “One of our strengths is being very solid financially—having a very long-term view of how we grow.”
And wherever that growth takes London Drugs, one thing won’t change: a laser focus on customer service. Says Malhman: “A very key belief that we have is our customers are way smarter than we are.” [pagebreak]
Who’s got the love? Well, according to a recent survey conducted by Ipsos in partnership with BCBusiness, iconic retailer London Drugs comes out on top as B.C.’s most loved brand for 2014—not for doing any one thing brilliantly, but by being very good at a slew of things.
“On the surface, the London Drugs business model defies all logic and business reasoning,” says Michael Rodenburgh, executive vice-president with Ipsos in Western Canada. “But all businesses can succeed if you are good at what you do and engender a strong, trusted relationship with consumers.”
B.C.’s Most Loved Brands (rank and score): 1. London Drugs. 182 2. WestJet. 166 3. Save-on-Foods. 165 4. White Spot. 149 5. Sun-Rype. 143 6. Vancouver Canucks. 141 7. BC Hydro. 140 8. The Keg. 138 9. BCAA. 134 10. Chevron. 131
Just shy of 1,600 British Columbia adults were surveyed between January 7 and January 19 this year. Ipsos asked respondents a series of questions about 65 “consumer-facing” brands that fell into at least one of the following categories:
1. Brands of companies headquartered in B.C.; 2. Brands of companies doing the majority of their business here; or 3. Brands of companies that have a heritage in B.C.
Rodenburgh and a panel of experts pulled together by Ipsos helped determine the long list of candidates. “We systematically excluded certain companies that would not register high enough on the scale. For instance, brands like River Rock Casino—which is a big brand in the Lower Mainland, but doesn’t mean anything to someone in Fort St. John. We defaulted to brands that had a reasonable shot, and ruled out heavily regional brands.”
Most of the brands included were no-brainers, although a couple of those that made the Top 10—Chevron Canada and WestJet—raised some eyebrows. Rodenburgh defends their inclusion.
“Chevron is on the list because as far as a consumer-facing presence, Chevron gas stations are only in B.C. The marketing decisions for the brand are made here. The decision-makers are here,” says Rodenburgh. “As for WestJet, it’s a question of heritage. When WestJet started in 1996, it was serving the B.C. market almost exclusively: flights from Calgary and Edmonton to Vancouver and Kelowna. B.C. is still a huge part of their business.”
With each brand, respondents were queried to see how relevant the brand was to them and how close they were to it. Ipsos also asked respondents to address how they felt each brand lined up with the following statements, or “brand attributes”:
1. A brand that I identify with; 2. A brand that I trust; 3. A brand that is unique; 4. A brand that is an innovator; 5. A brand that I see everywhere; 6. A brand that is socially responsible; 7. A brand that makes a positive contribution to B.C.; 8. A brand that I am likely to interact with
When the numbers were tallied for the 65 brands, Ipsos took the average and made that equal to 100. So for London Drugs, scoring a 182 overall means it scored 82 per cent higher than the average B.C. brand.
That’s the overall picture. But what gets really interesting is how various brands line up in consumers’ minds on the individual attributes— it provides real insight into what makes each brand tick.
Take, for example, Chevron. The gas-station giant makes the list largely because of its ubiquity, with 166 stations across B.C. The brand’s top two attributes?
1. See everywhere 2. Likely to interact with
BC Hydro is another brand that consumers are likely to interact with, but its top-ranked attribute is social responsibility (credit Power Smart and other such initiatives):
1. Socially responsible 2. Likely to interact with
When it comes to brands making a “positive contribution to B.C.,” nobody from our Top 10 list ranked higher than the Canucks. Overall, says Rodenburgh, this attribute is “not efficient in driving overall success of a brand.” The exception was for B.C.’s sports teams, which, on that sub-list of “positive contribution” alone, dominated:
1. Vancouver Canucks. 240 2. BC Lions. 229 3. WorkSafeBC. 216 4. Pacific National Exhibition. 213 5. Vancouver Whitecaps. 197
“Uniqueness” was perhaps the least influential attribute in determining the final score, but three brands stood out on that front:
1. WestJet. 244 2. Vancouver Canucks. 213 3. White Spot. 166
And as for Innovation, there was no comparison—WestJet ran away with the category, with the next best brand in the Top 10, BC Hydro, scoring 1/3 of what the airline did:
1. WestJet. 433 2. BC Hydro. 141 3. London Drugs. 133 4. White Spot. 123 5. BCAA. 106
WestJet, says Rodenburgh, is the exception to the rule that what matters most in brand love is the extent to which you interact with a brand. “They’ve created a resonance without relying on a frequent purchase cycle,” he says. “They get brand love for innovative customer experiences instead.”